Do you need a credit check to get a car on finance?

When you apply for a car on finance, it’s more than likely that you will undergo a credit check. If you have a low credit score you may be worried about the outcome of a check and if a lender will want to offer you for finance or not. There are a number of factors that can affect car finance approvals, but your creditworthiness is one of the main factors. The guide below has been designed to explore how car finance checks affect car finance and why they are important to the approval process.

What is a credit check?

A credit check is when a potential lender takes a look at your credit file. There are two types of credit checks which can be used by lenders. They are a hard search credit check and soft search credit check. Both types of credit check are different and gives lenders either a full or partial look at how you’ve handled credit in the past. A hard search credit check is when lenders get access to your full credit report, they are able to see everything listed on your credit report, the applications you’ve made for finance or credit and also the outcome of these applications. A soft search credit check is much more friendly and widely used by many car finance lenders. A soft search does not give lenders a full look at your credit report, won’t be recorded on your file and doesn’t harm your current score either.

Does a credit check harm your credit score?

If you have low credit, you may be worried about the affect a credit check has on your current credit score. Where possible, you should try to stick to soft search credit checks as they don’t harm your credit score and aren’t recorded on your credit file either. Making multiple hard search credit checks when you apply for finance in a short space of time can negatively impact your credit score as it can indicate that you are desperate for credit or finance.

Why do lenders use credit checks for car finance?

A credit check and your credit report can indicate your credit worthiness. A low credit score may indicate that you have struggled to meet repayments in the past and, have high levels of debt or have no previous borrowing history. For a lender it’s all about risk, the risk they take when they give you money for a car and the likelihood of them getting the money back, on time and in full. If you’ve not kept up with your previous finance commitments lenders may worry that you won’t be trusted to pay back their loan on time. It can be hard to get a car on finance with no credit check as it would be unethical to lend to anyone who couldn’t afford finance or won’t pay it back.

What should you do before a credit check?

If you’re looking to apply for car finance, there are a couple of things you can consider before a lender performs a credit check on you.

  1. Fix any mistakes on your credit file. It’s really important hat all the information on your credit report is accurate and up to date. Having misinformation can negatively affect your credit a score and if the information listed on your report doesn’t match your car finance application, it can be hard for lenders to verify who you are.
  2. Improve your credit score. It can be beneficial to work on your credit score before you start applying for finance. A better credit score can mean easier car finance approvals and better interest rates. By making payments on time and in full, building a credit history, and reducing existing debt can help to improve your credit in the run up to your finance application.

How to increase your chances of getting approved for car finance:

  • Save up for a deposit. Whilst there are many car finance deals that don’t require a deposit at the start of the agreement, it can be beneficial to have a deposit to hand. Putting more down for a car means you don’t have to borrow as much from a lender and also helps to make your loan amount smaller and more manageable.
  • Choose the right lender. If you have bad credit, it can mean that you are better suited to mainstream or prime lenders. It can be a better way to improve your chances of approval if you choose a lender that can provide black box car finance or are suited to bad credit applicants.